Australasia

Financial markets and institutions are mighty unstable no matter where you look these days. Europe, America, China, Australia. Where are you supposed to go to invest your money?

The commodity boom has created a “two track” economy. The mining and commodity boom benefits a small part of the economy whilst simultaneously creating problems for other parts. The mining and energy sector account for less than 10% of the Australian economy.

We caught up with an old friend from the United States last night. He was last in Australia in 2001. He couldn’t believe how expensive things in Australia had become. Even taking the massive swing in exchange rates into account, on a one-for-one basis the price difference is huge.

Occasionally we receive comments along the lines of ‘you try to push the market lower’ or ‘talk the market down’. Some mistake our realism for grumpiness. Or assume we just don’t like it when the stock market goes up. While flattering, we must admit we have no control over the stock market whatsoever.

The actions need to try to stabilize the European debt crisis are well recognized. But Even if measures could be implemented as soon as possible, success is not assured. However without them, the chance of a disorderly collapse is increasingly significant.

Markets – free markets – are meant to be unstable. They are meant to crack-up from time to time. And thank God they do. Otherwise, we’d be stuck forever with zombie industries and dead end investments.

A whole sector of the commodities complex that’s in a long-term bull market isn’t measured by the RBA’s commodity prices index. Do you realise what this means?

There is a delicious irony in the world of economic policy at the moment. The Asian crisis back back in 1997 and 1998 was brought on by the same things that led to the current crisis in Europe and the US (and the one I believe is coming to China).